Quantity Theory of Money (Allais' viewpoint) The Case Study of Iran Economy

The relationship between price level and money as well as the effect of money on real variables has always been one of the important economic issues in the field of Monetary Economics. In this regard, we can cognize the Quantity Theory of Money as the most famous theory. This paper analyze Allais' model in the context of Quantity Theory of Money by using mathematical approach. The results show that economic and price growth have positive effect on income velocity of money and negative effect on relative desired money balances, as well as pure rate of interest –rate of time preference- has positive effect on desired money balances and versus negative effect on income velocity of money. So, the instability of income velocity of money leads to instability of money change effectiveness on price changes.